That's to turn the sound off on audio already on other tracks. If you uncheck it, you can hear audio on parallel tracks as you narrate.
If you are hearing echoing, move the slider down. The slider on the left is not a record level indicator, but a volume indicator.
I had the same problem and question in APE9, then I searched this forum and found your reply.
The only problem is the wording in the dialog box, which I think Adobe should fix. While your final sentence is quite true, the slider on the left is not a record-level indicator but rather a volume (as in headphones) indicator, which controls the volume of the feedback coming into the headset speakers from the microphone with a short time lag. (At least that's the way it seems to work with my headset.)
the problem is with Adobe's wording in that box, namely, "to reduce feedback while recording lower Input Level Volume slider." Well Adobe, the only slider that I see in the box is the one on the left, and calling it an "Input Level Volume slider" sure sounds like a "record-level control" to me. That's a logical interpretation in my book. And "mute audio while recording" is pretty vague, what audio exactly (you answered that question correctly also, but until I saw this post I assumed, like the original poster here, that "audio" referred to the sound/feedback in my headphones, not other audio tracks. Though I guess if I'd been recording narration on top of another audio track (which I don't usually do), I might have noticed that.
All this to plead with Adobe, if they're monitoring this forum, to reconsider the wording in that dialog box and in future elsewhere in the software. Maybe before releasing the next version, ask some non-engineers to read the wording in the various dialog boxes and have them edit it, or at least explain to you in their words what they think it means. You might be in for a big surprise, as above ... Just a suggestion
Vague or confusing wording such as this doesn't help anyone.
If you feel that you have uncovered a Bug, or have found incorrect info in the Help files, I would urge you to file a Bug Report. The more info that you can give Adobe, the easier that it will be for them to make changes, or corrections.
Though we have had a bit more of an Adobe presence in this forum, they are usually not gathering data, but are trying to help with specific issues. They are also probably not in the department, that would need to act on such a report.